Should I Buy Premium Bonds?

It can be difficult knowing where the best place is to put money when you are saving it. One place that a lot of people put money is the Premium Bonds. These can look attractive but it is worth having a good understanding of how they work before you decide whether to use them.

How do they work?

Premium bonds are a savings scheme where you buy £1 bonds which are entered into a draw each month. You can buy up to 50,000 of them and each bond has the same chance of winning. There are prizes of different amounts which vary from £1m to £25 and there are lots more smaller prizes than larger ones. You can withdraw your money at any time and when you buy bonds they will be entered in the draw following the next one – so the money has to be in the account for a full month before the bonds are entered in the draw.
How much is the interest?

The interest rate is difficult to calculate. There is one and it does change depending on the base rate. However, not everyone will get the rate because of the way it all works. As your bonds are being entered in a draw, there is a chance that you will get nothing. However, there is also a chance that you will get a large prize. Therefore, your own personal interest rate will depend on whether you win a prize or not. Although each bond has the same chance of winning, the more bonds you have the more likely it is that you will have a winning one. This means that it is more likely that the prize winners will have more bonds. However, there are still people that win big prizes that have a relatively small holding.

Should I buy premium bonds and how do they work?

Is it better than the lottery?

If you like to have a gamble then these can be much better than the lottery. This is because you will always keep your stake. So, if you buy 25 bonds for £25 you will be able to sell them again and get your £25 back whenever you wish. If you £25 worth of lottery tickets you will not get that money back. The only drawback with premium bonds is that you have to buy £25 worth of bonds at a time which means that you may have to save up the few pounds you spend on a lottery ticket each week before you cab buy any. However, it will be worth it because you will not only have a chance of winning a prize but you will also be able to get the money back to spend if you need it.

Is it better than saving?

There are many savings accounts that will give a guaranteed return that is better than the average interest available on premium bonds. This means that if you want a guaranteed rate of return then these accounts will be a lot better. However, you will not have a chance of winning a large amount of money, so you will need to decide which you feel will be the best for you. Compare the interest rates and consider what you want. If you want a higher savings rate, you will have to be prepare to tie your money up though or perhaps give notice on withdrawals and so you will need to decide whether you feel that this is worth it or not. It can be tricky to decide and you could always split your savings between the different accounts so that you have a mix and then some guaranteed interest and some chances of winning money.

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